Bullish, 8.3%-Yielding Sabra Health Care Stock Has Moved on From Pandemic
December 7, 2023
Why SBRA Stock Has Gone Up in Past 6 Months
The COVID-19 pandemic crushed stocks in virtually every industry. One sector that was hit really hard was health care. Nursing homes and health-care facilities experienced high infection rates, lower occupancy rates, and higher expenses—all of which resulted in lower revenues and earnings.
One health-care real estate investment trust (REIT) stock that has moved on from its pandemic-induced bottom is Sabra Health Care REIT Inc (NASDAQ:SBRA).
Sabra Health Care is a self-administered, self-managed REIT that owns and invests in real estate that serves the health-care industry. Its primary business consists of leasing properties to third-party tenants in the health-care sector. (Source: “Investor Presentation,” Sabra Health Care REIT Inc, November 6, 2023.)
The company’s real estate portfolio is primarily made up of skilled nursing/transitional care facilities, senior housing communities, specialty hospitals, and “other” facilities.
As of September 30, Sabra Health Care had 377 properties: 240 skilled nursing/transitional care facilities, 43 leased senior housing communities, 61 senior housing communities operated by third-party property managers, 18 behavioral health centers, and 15 specialty hospitals and other facilities. (Source: “Sabra Reports Third Quarter 2023 Results,” Sabra Health Care REIT Inc, November 6, 2023.)
When it comes to areas of stable growth, you can’t go wrong with the aging North American population. Since 2000, the 85-or-older population in the U.S. has grown by 60%. Over the same period, there has been a 10% decline in skilled nursing beds in the country. (Source: Sabra Health Care REIT Inc, November 6, 2023, op. cit.)
One study predicted that, by 2040, roughly 20% of Americans would be 65 or older, up from 12.4% in 2000. Between 2000 and 2040, the number of Americans ages 65 and older would more than double to 80 million. Over that same time frame, the number of Americans aged 85 and older would nearly quadruple. (Source: “The US Population Is Aging,” Urban Institute, last accessed November 29, 2022.)
Senior Housing Portfolio Showing Significant Improvements
For the third quarter ended September 30, Sabra Health Care announced that its total revenues increased by approximately 15% year-over-year to $161.6 million. (Source: Sabra Health Care REIT Inc, November 6, 2023, op. cit.)
The company’s third-quarter 2023 net loss improved to $15.1 million, or $0.07 per share, from a third-quarter 2022 net loss of $50.0 million, or $0.22 per share.
Sabra Health Care REIT Inc’s funds from operations (FFO) improved in the third quarter by 17% year-over-year from $0.28 to $0.33 per share. Meanwhile, its normalized FFO also came in at $0.33 per share. Its adjusted FFO (AFFO) inched up to $0.35 per share from $0.34 in the same period last year, while its normalized AFFO went down slightly year-over-year from $0.35 to $0.34 per share.
During the third quarter, Sabra Health Care generated $80.0 million in gross proceeds from the sale of 13 skilled nursing facilities and two senior housing facilities. The company used the net proceeds to reduce the outstanding balance on its revolving credit facility.
On July 6, the REIT successfully transitioned 11 wholly owned senior housing managed properties from Enlivant to Inspirit Senior Living. Since then, the performance of those properties has exceeded the company’s expectations.
Commenting on the third-quarter results, Rick Matros, Sabra Health Care REIT Inc’s CEO and chair, said, “We believe our business is moving further and further away from the pandemic-induced bottom.” (Source: Ibid.)
He continued, “While we expect labor issues to persist, we do see continued improvement. Despite this challenge, occupancy and rent coverage in our skilled and senior housing [triple net lease] portfolios remain on an upward trajectory.”
Matros added, “During the quarter, our senior housing managed portfolio showed strong improvement in all critical metrics. Our balance sheet continues to be exemplary[,] and that, together with our strategy of focusing on our internal growth, has led to improvements in our cost of capital. With an improved cost of capital, the door to external growth has started to open in some cases.”
Board Maintained Quarterly Dividend at $0.30 Per Share
In May 2020, in the early days of the COVID-19 pandemic, Sabra Health Care cut its quarterly dividend from $0.45 to $0.30 per share. The company’s board has held the payouts at that level since then. (Source: “Dividend,” Sabra Health Care REIT Inc, last accessed November 29, 2023.)
In November 2023, Sabra Health Care stock paid a quarterly cash dividend of $0.30 per share, for a high yield of 8.27%. That’s almost triple the current U.S. inflation rate of 3.2%.
The $0.30-per-share dividend represents 88% of the REIT’s normalized AFFO per share of $0.34. This shows that SBRA stock’s dividend is safe.
The big question is when Sabra Health Care REIT Inc will begin to raise its quarterly distributions. The company’s balance sheet is solid, but its operations haven’t fully recovered from the pandemic, so investors may have to contend with quarterly payouts of $0.30 per share for a little while longer.
Sabra Health Care Stock Up 28% in 2023
Sabra Health Care REIT Inc’s management team members aren’t the only ones who believe the company’s business has moved on from the pandemic; investors are on board, too.
As of this writing, SBRA stock is up by 45% over the last six months, 28.5% year-to-date, and 26.5% year-over-year. On November 22, Sabra Health Care stock hit an intraday high of $14.67, its highest level in more than two years.
Wall Street analysts think SBRA stock will close in on its all-time record high of $17.36 per share. They have a high 12-month share-price forecast of $16.00. That points to potential gains of 10.3% from its current level.
Chart courtesy of StockCharts.com
The Lowdown on Sabra Health Care REIT Inc
Sabra Health Care stock is a great way for investors to take advantage of the fast-growing health-care facilities industry.
Sabra Health Care REIT Inc has a solid balance sheet, and its business continues to rebound from its pandemic lows with improved occupancy rates, growing revenues, and an expanded real estate portfolio.
All of this should help SBRA stock gain further momentum and support its high-yield dividends.
